A bank is considering lending a $100,000 margin loan secured by an ASX-listed stock. How much regulatory capital will the bank require to grant this loan under the Basel 3 Accord? Ignore the capital conservation buffer.

Which of the following statements about the Basel 3 minimum capital requirements is NOT correct? Common equity tier 1 (CET1) comprises the highest quality components of capital that fully satisfy all of the following characteristics:

(a) Provide a permanent and unrestricted commitment of funds;

(b) Are freely available to absorb losses;

(c) Impose unavoidable servicing charges against earnings;

(d) Rank behind the claims of depositors and other creditors in the event of winding-up of the issuer.

The below graph from the RBA shows the phase-in of the Basel 3 minimum regulatory capital requirements under the Basel Committee on Banking Supervision (BCBS) on the left panel and in Australia under the Australian Prudential Regulatory Authority (APRA) on the right panel.

Which of the following statements about the Basel 3 minimum regulatory capital requirements as at 2019 is NOT correct? All minimum amounts exclude the 2.5% counter-cyclical buffer.

Risk-weight (with at least 40% of the mortgage insured by an acceptable LMI)

%

Risk-weight (no mortgage insurance)

%

Risk-weight (with at least 40% of the mortgage insured by an acceptable LMI)

%

0 – 60

35

35

50

35

60.01 – 80

35

35

75

50

80.01 – 90

50

35

100

75

90.01 – 100

75

50

100

75

> 100.01

100

75

100

100

A bank is considering granting a home loan to a man to buy a house worth $1.25 million using his own funds and the loan. The loan would be standard with no lenders mortgage insurance (LMI) and an LVR of 80%.

What is the minimum regulatory capital that the bank requires to grant the home loan under the Basel 3 Accord? Ignore the capital conservation buffer.